Grim and grimmer for education funding

Death of interest-free loan program for schools sparks panic mode

By Juley Harvey Trail-Gazette

Posted:
07/01/2010 03:50:25 PM MDT

Todd Jirsa

The state's stakes for gambling with the future of children in Estes Park just got higher. The abrupt cancellation last week of the short-term, interest-free loan program, used last year by 30 school districts (including Park R-3) to handle cash-flow issues, caused the Estes Park school board to go into "panic mode," school superintendent Linda Chapman said after a special meeting on Tuesday night.

Although the school budget, requiring massive cuts, is final, a new crisis now looms. It threatens to lead to the closing of Park R-3 schools for several months starting in December, when the money runs out.

Feeling the squeeze of the November elections with three ballot issues that may cut off even more revenue to the schools, school board members acted "proactively.

Linda Chapman

" They voted unanimously to direct Park R-3 business services director Patrick Hickey to ascertain the availability of a line of credit from the school's bank and then report back immediately to the board's financial committee. The financial committee will then consider declaring a fiscal emergency and the board will decide at subsequent meetings about taking out a line of credit they hope will carry them through the months of December through February, before the property taxes come in. That way, they will be able to meet payroll and contract obligations and keep the schools' doors open.

The options before them, they agreed, are narrowing, harrowing and bleak.

The board also voted unanimously to participate in the November election, reserving a spot on the ballot, which they have to reserve by July 9.

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Board president Todd Jirsa said that last Thursday the board learned of the decision by the state treasurer's office to cancel the zero-interest loan program, which created a "situation" for this school district. Without the no-interest loan, "we'd run out of money by Dec. 1," he said.

Hickey said that in 2009, when Park R-3 became an active participant in the interest-free loan program, Estes Park schools borrowed and paid back $699,000. This year, that number jumped to $1.4 million, and next year it will be $1.9 million.

Chapman said, "That's not because we haven't saved enough money. There's less state backfill."

This year, we're at 100-percent local funding. That's why the numbers jumped from $700,000 to $1.4 million, she said. Hickey said legislators are trying to find an "out." Their reaction was to accelerate aid at the front end and when property taxes come in, give schools less -- essentially an advance until March, which would stop when property taxes kick in.

"That does not take care of us," he said.

According to a memo from the Colorado Association of School Boards (CASB), "The culprit is the proposed Amendment 61 that, if passed, would require voter approval on any school district borrowing, including cash-flow borrowing. In addition, Amendment 61 would require districts to reduce their tax rates when borrowed funds are repaid -- even though short-term borrowing does not impact taxpayers.

"The Department of the Treasury has concluded that the tax rate reduction provision would apply to the state as well, so they are halting the program -- at least until the results of the November vote are known. If the measure fails, the treasurer will resume the program in December. Of course, reducing district tax rates when cash flow loans are repaid would be untenable for the state and school districts, or any other publically funded entity that is repaying debt....Coloradans for Responsible Reform has created a website to provide information about the ballot questions. 'Amendment 61 is a crazy experiment that would eliminate any practical means for state and local governments to make capital improvements,' it states on the website. For more information on Amendment 60, 61 and Proposition 101, visit donthurtcolorado.com."

Hickey said Amendment 61 requires voter approval before borrowing and limits the state's ability to lend money. The treasurer's office decided to stop the loans now, he said, affecting some districts more than ours. For instance, the Eagle school district will be broke before the election takes place, he said.

"Our break-even point is Dec. 1," Hickey said.

The need is to act quickly and to have all the elements required in place at the time of the election, the board agreed.

Part of the issue for Park R-3 is that "we haven't collected $2 million in total before February," Hickey said. "Our property taxes comprise 100 percent of the budget. We haven't collected 20 percent of our entire budget by February. We'll be dependent on cash reserves for operating expenses."

Chapman pointed out we "need 80 percent to get to that point." Historically, district expenses are bigger than the money line until May or June.

A good way to figure the budget is that the payroll is $800,000 a month, including benefits, Hickey said.

"If we make it until December," he added, "we'll need $1.6 million for (two months' payroll of January and February)."

Other districts are hoping and praying, Chapman said, but Park R-3 is the first to investigate "what to do to avoid terrible consequences." If Amendment 61 passes and the district has secured a line of credit, at least there will be some money available.

Jirsa outlined the options: getting a line of credit before the election; cutting $1.95 million in expenses for the budget between July and Dec. 13; closing schools in December and reopening them as the district has the ability to make payments; using the $1.2 million bond approved by voters in 2006 for remodeling; and putting a ballot issue before the voters asking for the right to borrow on a line of credit for cash-flow purposes.

Chapman noted that cutting $1.4 million in 12 months was painful enough; to cut another $1.9 in eight months is unthinkable, she said. She also worried, as did other board members, about the contract obligations, should the schools have to close. What board members found palatable was the line of credit.

Board member Mike Miller said that a viable solution is to use current authority for short-term borrowing to try to get a bank loan for this year, to get us through this year.

"If these (amendments) pass, this is not a long-term situation.... The state will be backed into a corner. They will have to get laws straightened out. It's a statewide funding problem. I think this will break their backs. They will not be able to operate," Miller said.

He said securing a line of credit would buy us a year and calm everyone down. Hickey said he should receive an answer quickly from the bank, since they know the district's finances.